A PESTEL ANALYSIS OF COSTCO Wholesale
Apart from being one of the leading retail brands in USA, Costco is also the largest warehouse chain in the world. Costco Wholesale was founded in the year 1983. Since then the brand has seen a lot of national and international growth. Today, Costco is a financially strong brand with an impressive presence outside the US. The retail brand is known for its innovative and unconventional business model. It has also proved its leadership in supply chain management.
Not just low prices and great quality, Costco is also known for its excellent customer service and a great organizational culture. However, for any large brand operating on an international scale, there are several forces that influence its growth and profits. From political to economical and technological there are various forces influencing the growth and profits of Costco. This is a PESTEL analysis that illustrates the impact of these forces in the national and international markets on the famous retail brand.
Political forces can have a big and deep impact on business. It is because they affect the economic environment of any country. The government’s policies, its attitude towards businesses and other government and regulatory factors affect how open the business environment will be for foreign businesses. The nature of politics and governance varies from nation to nation. Not all of them are equally open to Foreign Direct Investment. It is why these retail brands are flourishing in some areas of the world and in some they face hurdles like Red Tape and regulatory pressures that obstruct their growth. In 2021, Costco has expanded its presence to 145 warehouse stores outside the US. In the US and Puerto Rico it has 564 stores operational and 105 in Canada.
Moreover, political stability represents economic stability and such an environment is conducive to good business outcomes. Political disruption on the other hand can be deeply problematic for such retail brands that depend on the efficiency of their supply chain for business. Political turmoil disrupts business and brings sales down. Moreover, it depends upon the government of a nation or state that how business friendly its policies are. Costco’s international footprint is smaller when compared to Walmart and it generates a large part of its revenues from the US and Canada mainly. However, the economic and political environments of these two markets have been great for retail businesses.
The economic forces shape the business world and sound economic growth is essential for business growth. The world economy went through a recession in 2014. During the recessionary period, people were cutting down costs which meant hard times and losses for the international brands. The recession is over and the condition of the world economy is better. This has led to a boost in the consumers’ confidence. With consumer confidence boosted, people are ready to spend more on small and big items. So, the changing economic environment is good news for the large business brands. The retail industry has performed very well as the condition of the economy has improved. In 2015 it generated more than $20 trillion and by 2020, it is expected to have grown past $28 trillion. The condition of labor market has also improved fast and people’s hourly earnings have gone up. It all means they have more dispensable income to spend on retail goods.
During the pandemic a large number of retailer brands had to shut their physical operations and depend mainly on digital technology for their business operations. People’s spending on nonessential items had also reduced due to falling employment and a temporary recession caused by the pandemic. However, advanced economies like the US were also quick to manage the impact of the pandemic on the society and the economy. Despite the impact of the pandemic, Costco experienced impressive revenue growth in 2020. In 2021, its net revenues grew to $196 billion compared to $166.8 billion in 2020. The US economy is doing a lot better compared to the period during the pandemic and retail brands including Costco are enjoying higher growth.
Socio-cultural factors too have an important role in business. Businesses cannot stand divorced from society and culture both of which are important and influential forces in terms of business operations and success. A brand’s social image decides its performance and affects its productivity. If a business has a good social image, it will work to boost its sales. If your social image is spoiled, you end up losing sales fast.
Social trends too can have a deep impact on the state of your business. Changing consumer demographics and other related factors can impact the size of your sales and your profitability. The millennial generation is a tech savvy generations and wants shopping convenience coupled with great customer service and excellent prices. The choices of the Gen Z are also a bit similar. E-retail is growing popular because it offers all of these. People can check items and their prices and get things delivered at their doorsteps. Costco has also accelerated the growth of its digital capabilities since it has now become indispensable for retail brands. Its online sales are growing at an impressive rate. However, customer satisfaction is of highest importance in every society and culture. Some brands do better compared to others because they have managed the cultural factors better than their rivals. In this way, it can be easily understood that socio-cultural factors have a major impact on businesses and their profitability.
Business growth is impossible without technology in the twenty first century. Technology and innovation are the core drivers of faster growth for businesses across all industry sectors. From marketing and HR to finance and customer service, everywhere the use of IT and software is growing for higher efficiency. Digital technology has helped businesses grow and expand at a faster rate. It is why Costco is focusing on e-commerce to grow at a faster rate and so are its rivals like Walmart.
Artificial Intelligence and Cognitive Intelligence are also growing in importance for predicting trends and serving the consumers better. Costco has already proved it in its supply chain that how great technology with a great strategy can help you acquire unmatched efficiency. In every part of its business operations from supply chain to sales and marketing, managing business efficiency for a retailer like Costco requires a stronger focus on digital technology. So, the technological forces have kept and will continue to grow in importance for the business whether operating at a national or an international scale.
Sustainability and environmental factors have become central to business in the 21st century. Even for the retail brands like Costco concerns like sustainable packaging, waste reduction and renewable energy are becoming central to business. Some of the key areas where Costco has maintained a strong focus in this area are:
- Maintain a low carbon footprint
- Enhance the energy management systems at its warehouses.
- Expand its packaging design initiatives.
- Develop its recycling and waste stream management systems
Big brands that are investing in sustainability and environment friendliness are not just enjoying increased profits but also better reputation and social image.
The legal forces have also grown more important in the 21st century. Apart from labor laws, laws protecting the consumers have also increased. The pressure on brands is higher that they engage in ethical practices and are legally compliant. Costco has maintained a very good image in terms of HR and other areas including quality and customer service. So, compared to its rival Walmart, it has had to face less of legal issues. Still, the threat from legal challenges cannot be underestimated and Costco would have to maintain its focus on legal compliance to continue doing business profitably and hassle free.